April 22, 2021
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No takers
Government confused over HAL disinvestment plan

After Defence Minister A K Antony expressed his reservations about fast track disinvestment of sluggish Hindustan Aeronautics Limited (HAL), the market has reacted even more badly as there is no taker for 10 per cent disinvestment plan of the government.

This has led to adding a new set of problems to go for fast disinvestment of HAL for which most industry players today are reluctant to even examine the plan whether it merits any consideration in an environment that is deluged with corruption and policy paralysis.

The government was thinking to go for disinvestment process in November last year and complete the whole documentation and other formalities by end of January this year but that has met with series of problems as MoD is slow in its approach while the industry is critical about such a half hearted plan.

As a result, despite several rounds of assurances by top Finance Ministry officials the process for HAL disinvestment has suffered a clear setback due to poor response to 10 per cent disinvestment offer of HAL, whereas the industry players want minimum 26 per cent.

The government is now asking Indian private companies to relook into the matter and trying to assure the defence industry players that the government will clear the remaining hurdles.

The government has already appointed four merchant bankers: SBI Cap, Goldman Sachs, Barclays and Axis Capital-for managing the stake sale of HAL.

The Cabinet in November 2012 had approved selling of 10 per cent stake or 1.20 crore equity shares through an initial public offer (IPO) of Navratna defence equipment maker HAL.

After sharp criticism from the armed forces, the government had set up expert groups under former Cabinet Secretary B K Chaturvedi for restructuring of HAL to make it more agile.     In the current situation of financial down turn, the government is trying hard to raise funds by way of disinvestment as part of its effort to keep fiscal deficit within the red line of 4.8 per cent of GDP this financial year.

On the top of it, the government may have to borrow Rs. 3.68 lakh crore in the first half of the next fiscal year (2014-15), accounting for 61.5 per cent of the total budget target for full year, which will leave more scope for the private sector to tap the market in the second half.

Indeed, the MoD had earlier requested SEBI for a special secrecy clause to apply on defence PSUs when they opt for disinvestment or IPOs in view of national security purpose. But the SEBI has declined to work out such a clause so soon.

Government insiders said that this has stalled any movement on HAL disinvestment plan in near future. But the government was trying its best to go for disinvestment this year under 2014 fiscal plan.

The HAL is now suffering from quality control and lack of investment to run its projects as infrastructure is fast waning out. The MoD said that last financial year, HAL made a turnover of over Rs. 14,300 crore and profit of over Rs. 3,400 crore.

However, HAL’s modernization plan for the period of 2010-20 is looking for an expenditure of Rs. 20,000 crore, part of which is to come from the divestment. Otherwise the HAL will collapse due to non fulfillment of orders.

The MoD was earlier planning to go for the initial public offer (IPO) sometime in third week of January 2014 as it will help HAL to get listed on the stock exchanges by March 31.

But SEBI has shown little response for a unique clause the MoD demands to protect information rights of the HAL as it might compromise national security.

Yet, most defence industry insiders said that it is just a false apprehension. In fact, last November, Secretary, Department of Disinvestment, had a detailed meeting with MoD and HAL officials for a smooth disinvestment of HAL. Now, all hope rests with the formation of new government.